Two weeks ago, I indicated that I had gone into a full, risk neutral hedge on my call options portfolio. This, of course, was equivalent to a call to cash in light of weakening market conditions. Since that time, the market has continued to deteriorate technically, and this technical deterioration clearly reflects uncertainties over economic fundamentals. This call to hedge or cash remains in play.

I have now gone into a full defensive hedging posture in my portfolio based on the weakening fundamental and technical conditions of this market. In particular, I have hedged each of my 2011 Call Leaps in stocks such as General Electric and Intel. My only "long only" stocks are a few biotechs that are long-term buy and hold plays largely outside the business cycle.

Last week’s market decline must raise the question: Was that simply a healthy pullback on some profit-taking in an otherwise newly established bull market OR a nasty harbinger of bearish things to come?

Last week, I noted that a technical market rally was likely inconsistent with the underlying economic fundamentals, which continue to show deterioration across countries and continents. With the market's 4% drop last week, a likely sideways pattern is coming more into focus as Mr. Market debates whether all the fiscal and monetary stimuli coming down the pike will be able to first stem the recessionary bleeding and then jumpstart the US and global economies.